Knowledge and Prices Chapter 2

We must look at the price system as such a mechanism for communicating information if we want to understand its real function ... The most significant fact about this system is the economy with which it operates, or how little the individual participants need to know in order to be able to take the right action.

Friedrich Hayek (1945). The Use of Knowledge in Society.
In Bruce Caldwell (ed.), The Market and Other Orders, XV
(Liberty Fund Library, 2014): 100.

Imagine a jigsaw puzzle of one billion pieces. These pieces are scattered randomly across a pasture that is one million miles square. If someone assigns to you the task of finding all these pieces, how would you do so?

One option is to search for each of these billion pieces by yourself. If you choose this option, you’ll likely die before you complete the task. Even if you live for 95 years and begin searching nonstop for the pieces the moment you are born, you’d have to find one piece every three seconds to find them all before you die.

But suppose you enlist the help of 1,000 friends to fan out with you across the pasture, searching for the pieces. The task is now much easier. If each of you finds just one piece every 30 seconds, you and your friends together will complete the task in a little less than one year.

Of course, this task can be made even easier by enlisting the help of one million people or, better still, 100 million people. With 100 million people average of only ten pieces. And so, if each of these 100 million searchers finds a piece every 30 seconds, the task will be completed in a mere five minutes.

Human cooperation is powerfully productive. Still, in this example, simply collecting all the pieces of the jigsaw puzzle is not by itself a very valuable achievement. The puzzle must eventually be put together properly to justify the time and effort spent on finding all the scattered pieces.

Think of each jigsaw puzzle piece as a unit of information that is potentially useful for making the economy work successfully. One piece might be the information that deposits of bauxite exist in a certain location in Australia.